How to kick start the economy

This is my 1st article from Bodohland. I have been back for 4 days now and it has been tiring one for me.. Kiddo’s sick with mild HFM (not FHM la but HFM – Hand Food Mouth disease).

In my former post last week while I was still in Kiasuland aka Singapore, I wrote this (read here). I had in fact wanted to follow up with another piece soon after that but I put that thought on hold. Anyways here I am with what I had in mind all this while.

I am not sure who will be the hero of the world when he or she actually puts this idea into practice. What I am going to write subsequently is purely hypothetical yet I find it feasible to implement. Just that it needs the cooperation of everyone. When I say everyone, it means every single human being including NGOs, WTO, world governing bodies and what not.

The title of today’s post is another piece of economic fundamentals – How to recover from the current recession.

Today as we know, the world is in debt. US debt alone stands at USD10.8 trillion (as of last week). World debt on the other hand is definitely more than USD10.8 trillion. Every government is trying to revive their economy from the ultimate collapse by physically pumping financial liquidity into the market. That wont really help. Read on to know why I say so.

World population is 6.6Billion. If everyone can spend USD1 a day, that would flood the market by 6.6Billion US dollars in CASH. Yes, CASH amounting to USD6.6 Billion a day, just by spending USD1 a day on an average (I say it again).

Certain countries (like most African nations) which are in serious poverty cannot afford to spend more than USD1 as they can afford to spend just that USD1 a day.

Richer countries on the other hand can definitely spend more than 1 US dollar a day. Folks in Singapore can spend upto SGD300 on a Crumpler bag for no fuck reason. If 1 can spend SGD300 on a stupid bag why not use the SGD300 for good use instead? Ok that was a pretty lame example but I bet you get my drift.

On a realistic horizon, if the average spending a day could be USD10Billion, that would a week’s spending would be USD70Billion and a 4-week month would bring that amount to USD280Billion. We are talking about cash payment since no bloody one guy in his right frame of mind would be going on credit any longer. (and seriously credit aint gonna help the world economy at this present moment)

But then 1 would say that USD1 aint gonna buy me nuts coz the US dollar has devalued and on the other hand commodities or daily groceries have gone up in price by bountiful times. This is true for rice (Read here)

Let me define recession again. Recession – shortfall of sales and purchases as a result of higher price in commodities/groceries and lacking the purchasing power (which can also translate to currency devaluation).

1 family who used to be spending USD 10 on 10 various grocer items can now only afford to buy perhaps 3-4 items with that same amount of money.

When such scenario kicks in, a family will start to tighten their belts. For instance, I could be consuming a packet of sugar (USD1 per pack of 500 gms sugar) for 1 month but since that similar pack of sugar now costs USD2, I would consume less sugar hence my sugar consumption will last me 2 months or more. From the economic point of view, I am now consuming 500 gms of sugar in every 2 months instead of 1kg of sugar in the same timeframe. (Or 250gms of sugar per month as opposed to 500 gms per month). Sugar producers will find it hard because now they are now producing less as a result of lower consumption by consumers. This applies for most of the major or key commodities or groceries. Imagine the chain effect in the long run. So how to beat this?

Instead of government pumping billions for no bloody use reasons (like bailing out AIG and whatever not), why not use this billions to subsidize commodities or groceries so that the normal (or at least somewhat normal) consumer trade can resume. Meaning to say, if 1 pack of sugar now costs USD2 (as opposed to when it was only USD1), why don’t the government subsidize a certain percentage of the cost. Read on and you will know why in the long run it will benefit everyone and how it ultimately kicks start the economy again.

As I said, the world is in serious debt. The world economy now gravely needs CASH, tonnes of CASH. And cash can only come from consumers, from all walks of life regardless if you a Red Indian, Chinese, Malay or European.

And that 1 way of generating cash is thru consumer spending. If every government instead of pumping billions into nowhere but instead subsidizes key consumer products, this would make it feasible for the consumers’ trade to take place again.

If 1 pack of sugar could be subsidize upto 50 US cents making it now USD1.50, without a shadow of a doubt that more people could afford to buy them. Similarly if rice could be subsidized to a certain amount, more Asians could afford to buy more rice to eat rather than rationing them like it was the Japanese occupation.

Again, if raw produces like fish, meat or vegetables could be subsidized, more people would be able to buy them and eat them. Hey, after all everyone needs to eat. Eating a bit or eating a lot is still eating. At grave situations, one could live with water alone. Is that the world we want to live in at the end of the day?

Now, let’s look at the bigger picture. If there is more demand (thru all these subsidies) it is for sure that production will increase. If production increases for supply to meet its demand, cost of production will be reduced with greater scale. This in turn will reduce the price of the produce. When the price of the produce is reduced, more people can then afford to buy them. At this moment, the government can choose to either continue with the subsidy or lift the subsidy. Lifting the subsidy will not harm the pockets of the consumers because the price of the goods had already in effect dropped.

So, with higher production a packet of sugar now might only cost USD1.10 with government subsidy. The respective government can choose to reduce the subsidy by 30 US cents (assuming that it was 50 US cents before). That same pack of sugar will now cost USD1.30 instead.

The positive side of it does not just stop there. With higher demand of goods and with higher production it will in turn generate employment.

At times, economists need to think of the basic fundamentals of economics which is built around supply and demand. Economics aint rocket science for one. The waste of billions of investment to develop a pen that could write in the moon (gravity-less pen) is an explicit example of US’ stupidity when Russians were using pencils instead.